1987 (1) TMI 165 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the reassessment proceedings under section 148 of the Income-tax Act, 1961.
2. Justification of the addition made by the Income Tax Officer (ITO) for the assessment year 1981-82.

Detailed Analysis:

1. Validity of the Reassessment Proceedings:

The primary issue was whether the reassessment proceedings initiated under section 148 of the Income-tax Act, 1961, were valid. The reassessment was based on a statement made by the assessee during an inquiry, where he admitted to holding Rs. 1,40,000 in cash on 31-3-1981. The ITO issued a notice under section 148 on 27-10-1982, the day after recording the statement on 26-10-1982. The assessee contended that the statement was made under duress and fatigue, arguing that the ITO could not reopen the assessment based solely on this statement. However, it was noted that for the purpose of reopening an assessment, the ITO only needs a prima facie belief of income escapement, which was deemed to be present in this case based on the assessee's statement. Thus, the reopening of the assessment under section 147(a) was upheld as valid.

2. Justification of the Addition:

The second issue concerned whether the ITO was justified in adding Rs. 1,00,500 to the assessee's income for the assessment year 1981-82 based on the statement that the assessee held Rs. 1,40,000 in cash on 31-3-1981. The assessee argued that this amount should be assessed in the assessment year 1982-83, as he had paid advance tax for that year and the investment in stock was made in that period. The Commissioner (Appeals) upheld the ITO's addition, relying on the assessee's statement. However, the Tribunal found that merely relying on one statement without further corroborative evidence was insufficient to justify the addition. It was necessary for the ITO to examine the assessee afresh and consider all materials on record to determine the correct assessment year for the cash holding and investment.

The Tribunal concluded that the ITO should have provided the assessee with a fair opportunity to explain the source of the investment and the availability of cash. The assessment for the year 1981-82 was set aside, with directions for a fresh assessment after giving the assessee an opportunity to explain the whole position. The Tribunal noted that protective assessments for the year 1982-83 had been made, and the addition could not stand simultaneously for both years.

Conclusion:

For statistical purposes, the appeal was treated as allowed, and the case was remanded to the ITO for a fresh assessment in accordance with the law, ensuring that the assessee is given a fair opportunity to explain the investment and cash availability.